Maybe Germany Actually Wants Cyprus to Leave the Euro

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I was noodling over Cyprus last night and a thought occurred to me. Maybe, from the perspective of Germany and the other core EU countries, a default and exit from the euro would be a good thing.

I’m not really serious about this, but here’s the pitch. Cyprus is tiny enough that default and exit wouldn’t have any actual effect on the broader EU economy. It would be a rounding error. And because (a) Cyprus is tiny, (b) Cyprus adopted the euro only five years ago, and (c) Cyprus has a unique status as an offshore banking haven for Russian billionaires, it would be fairly easy to convince the financial community that their default is a special case that doesn’t have any broader implications for the eurozone.

So the eurozone would be OK. But if Cyprus chooses this route, the Cypriot economy is going to be in shambles. Sure, in the long run, they might do OK by readopting the pound and devaluing it, but in the short term it would be ruinous. Residents wouldn’t just lose 6.5 percent of their savings, they’d lose something like a third of their purchasing power thanks to recession and devaluation. It would be a long, grinding disaster.

And perhaps that would be a very pointed object lesson for voters in Greece and Spain and Portugal that default and exit is even worse than the austerity the EU is insisting on. The implicit message would be: You might not like it, but you better go along if you know what’s good for you. Just look at what happened to Cyprus.

So….from the German perspective, Cyprus could provide a very cheap demonstration of the dangers of calling their bluff. Who knows? Maybe they think that would be worth it. This should give Cypriots pause for thought.

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is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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